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How Much Term Insurance Cover Should One Buy?

Updated On Sep 14, 2021

Term insurance can ensure that your loved ones have enough money to survive and live comfortably in your absence. With term insurance, you pay a certain premium to the insurer every year or for a set number of years. In exchange, the insurer guarantees to pay your family the sum assured if something tragic happens during that time. Term insurance, among other life insurance products, provides more life coverage for a lesser price than other insurance products. This is why most experts recommend it as one of the best life insurance options. Read on to find out how to decide on an adequate term insurance cover for yourself.  

How Much Term Insurance Cover Should One Buy?

Here are a few things to think about when figuring out how much term insurance you'll need.

1. Age

Your age at the time you buy the policy is a big factor in determining how much coverage you'll need. Those in their late twenties are in the early phases of their careers and may not have many liabilities, so they may believe that a hefty insurance policy is unnecessary. However, as people reach their 30s and 40s, they are more likely to be married and have children. There's also the possibility of home or personal loans, which could result in further debt. At this stage, individuals may require a higher level of coverage to ensure that their dependents are not burdened by those EMIs in the event of their untimely death and that they can maintain their lifestyle without making too many sacrifices. Term insurance costs rise with age, and when you're young, you may acquire a lot of coverage for a low price. As a result, the sooner one chooses a term insurance plan, the better.

2. Family Lifestyle and Expenses 

When calculating the amount of coverage, it's vital to consider the standard of life desired by one's dependents. Downgrading one's lifestyle is a major setback that no one wants to experience. Furthermore, even if you are forced to be frugal because you have no other choice, fundamental necessities cannot be neglected. To arrive at a preliminary estimate of the cover amount, one must consider the monthly costs that their dependents may incur, as well as the number of years that they would require a consistent monthly income. Of course, the ever-increasing rate of inflation must be considered.

Also read - 6 Most Frequently Asked Questions About Term Insurance Policies

3. Loans & Debts

Nobody wants their family to be saddled with large EMI payments on loans they took out, such as a home loan, if something bad happens to them. It is crucial to consider any outstanding loans while determining the cover amount. Given the high debt connected with home loans, it is usually a good idea to take out a separate term insurance policy covering the loan value so that the loan may be repaid in the event of an accident.

4. Children’s Future 

While term insurance can be a lifesaver for your family and save them a lot of pain, investing in your children's education is another safe strategy to ensure that they live decent lives and become financially self-sufficient in your absence. You can count the number of years of formal education your child will require and the expense of that schooling to ensure that your child's future is secure. 

5. Premiums 

When you get a term insurance policy, you must pay the premium according to the payment cycle. Although it is a good idea to be completely insured in case of an emergency, some people overspend and wind up with more coverage than they require. Hence, it would be best if you made certain that the premium amount was within your budget. It's also worth noting that if you don't pay your premiums on time, your insurance may lapse, leaving you vulnerable to financial loss.

Take Away

While calculating the value of term insurance isn't difficult, following these steps would help you figure out how much money you'll need to keep your family financially stable. However, because priorities and financial needs change over time, it's always a good idea to revisit and re-evaluate your term insurance coverage every few years. 

You may also like to read - How to Choose the Best Term Insurance Company?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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